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Interest income on RBI Bond (cumulative)

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Bishnu Sikdar

6 Points Posted on 07 May 2020

In RBI (8% GOI Bond) (cumulative option) total Interest is paid at the end of maturity after 6 years.TDS is also made @ 10 % at the end of 6th year on maturity on the total interest income. My question is ,Can I show each year's accrued interest in my income tax return of each financial year ( to avoid 6 year's cumulative interest in single year's income) ? Susequently can I claim Refund of I.Tax ? I am a sr. Citizen. Please suggest the best option ? Thanx.

Replies (2)

Quick Summary

This discussion explores how to handle tax on the cumulative interest from RBI bonds, which is paid out at maturity. The core question is whether accrued interest can be declared annually in income tax returns to avoid a large tax bill in the final year. The response clarifies that taxability depends on the accounting method: cash basis means tax is due upon receipt, while mercantile basis taxes income as it accrues. For senior citizens, understanding these options is crucial for tax planning.

Kiran Hathalia

837 Points Posted on 07 May 2020

Interest on RBI bonds is taxable under the head income from other sources assuming the bonds are held as an investment. Taxability of income under this head depends on method of accounting followed by the assessee namely cash system or mercantile system. In case you adopt the cash system of accounting then the interest on the bonds will be taxable in the year of receipt only. In case you adopt a mercantile system then the interest on the bonds will be taxable on accrual basis yearly even though you do not actually receive the interest.

Ram Narayan

None

32 Points Posted on 03 January 2022

Most of the Banks follow Mercantile System for Fixed Deposits. I think they will follow the same in this case also for individuals. So the yield maynot be same as bank will account for the TDS deducted every quarter in the Interest Payable and there will be corresponding reduction in the interest when compounding. There is no clarity from the Bank. But the interest what I calculate after TDS is much higher than what HDFC bank pay to me in Non-cumulative option. Still my form 26AS is not updated. Only in may 2022 I will know how my bank accounts.